Yesterday President Obama signed the American Recovery and Reinvestment Act into law. That act includes the Homeowner Affordability and Stability Plan, which could be a very positive thing for the housing market. After a quick scan of the Executive Summary and Q&A, I think it looks great. Some of the highlights include:
1. Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices.
2. Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners.
3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac.
So what does all that mumbo jumbo really mean and how might it help you if you’re a homeowner struggling to make your payments? Here is some additional information from the White House Q&A.
If you are current on your mortgage payments: The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.
If you are behind on your mortgage payments: The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage. In addition, the plan provides incentive payments to the borrower if they make timely payments on the loan once it has been modified. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.
If you think you might qualify and would like to take advantage of this modification program, you’ll need to gather information for your lender, including:
- Your montly gross income (from pay stubs, etc.)
- Most recent income tax return
- Information about any second mortgage on the house
- Payments on each of your credit cards (if you have balances)
- Payments on other loans such as student loans and car loans
Complete eligibility details will be announced on March 4th, 2009 when the program starts. Mortgage lenders will begin accepting applications after that. Only the mortgage on your primary residence is eligible for modification. Mortgages on second homes or investment properties are not eligible. Mortgage companies are not required to participate in this program but because the government is offering incentives, it is expected that most major lenders will participate.